Tougher pharmaceutical cost-containment measures are, perhaps, an unsurprising response to an acceleration in the commercialisation of high-cost speciality medicines and to the fiscal pressures engendered by ageing societies and sluggish economic growth. Consequently, research-intensive pharmaceutical companies are under intense pressure to justify the cost of their products. Global Pricing Innovations (GPI) believes that effective integration of competitor, pricing and market access intelligence into business strategy, is key to buoying the value of product portfolios in challenging regulatory landscapes.

R&D productivity spurs premium prices

Higher barriers to reimbursement, the emergence of new price control mechanisms in developed markets such as Germany, and public tender processes designed to maximise discounts, are unnerving trends for pharmaceutical manufacturers; least not, because R&D outputs over the past ten years have resulted in a greater dependence on higher-cost, premium priced biologics and speciality brands, rather than high-volume, low priced primary care products, to drive revenue growth.

At 45 novel US Food and Drug Administration (FDA) drug approvals in 2015[i], pharmaceutical industry productivity appeared to have bounced back to the heights seen in the mid-1990s. Although this dropped to 22 new FDA drug approvals in 2016[ii], estimates of the value of new drug candidates awaiting regulatory approval, and those in phase III clinical trials, in mid-2016[iii], indicate that the industry productivity outlook remains buoyant. Having passed through the patent cliff’s fiercest period of generic erosion, the positive productivity trend is a welcome triumph for the research-based sector. The evolution of output from R&D labs, however, is best described as a double-edged sword. On the upside, a higher proportion of complex biological drugs means greater resilience to “generic” erosion in the future, since equivalents to biological drugs are harder to produce. In addition, more products for speciality care and for rare – or “orphan” diseases – means that unmet clinical needs are being addressed at a faster pace than seen in previous decades. On the downside, such medicines are extremely costly to produce and often target smaller patient populations; this has increased the industry’s reliance on pricing to maximise value, which, in turn, has raised the risk posed by ever tightening cost controls across the sector.

Of the 45 drugs approved by the FDA in 2015, 47% of them were for “orphan” diseases that affect 200,000 or fewer Americans and 51%[iv] were specialty products. Evaluate Pharma projects that orphan drugs will represent more than 20.2% of global prescription sales by 2020 (excluding generics), compared with just 6.3% in 2000[v]. Specialty medicines and biologics are expected to make up half of industry sales by 2020[vi]. These figures and projections demonstrate a decisive shift away from a previous industry reliance on mass market, primary care and chemically-processed products to drive revenue growth.